Debt comes paired with something positive. Borrowing to go to school gives you an education and a debt. The education part is good and the debt part is bad. When people say that this is a good debt, they mean that you’re better off with both the education and the debt than you are with neither. But by itself the debt is still bad.

So am I just playing semantic games? I don’t think so. By getting the semantics right, we can change behaviour in a positive way. We should say that debt is bad, education is good, and that (most of the time) the advantage of education outweighs the disadvantage of having student loans. Phrased this way, it’s clear that minimizing the debt is desirable. We can still have the education with less of the associated bad debt by living frugally while going to school.

Instead of giving students a license to spend by declaring student loans to be good debt, we should call the debt what it is: a necessary evil for those who don’t have the savings to pay for school. Student loans are usually worth it in exchange for an education, but you can come out even further ahead by spending wisely while studying to minimize the size of student loans.

So, I say all debt is bad. It’s just that sometimes the thing we get in exchange for the debt is valuable enough that it makes sense to borrow.

13 comments:

No I disagree you've got it all wrong, ALL DEBT IS BAD... no wait, you are agreeing with me.. OK, never mind, but I am on a personal crusade to find every comment-able post on the web that says Debt is Good (or can be good) and will leave a comment saying DEBT IS BAD!

I think debt can be a viable strategy for success; companies with billions of dollars in cash often borrow rather spend what's in their cupboard (microsoft is a good example). I think if you use the money as part of your strategy is a good idea, as long as it's holistic. For instance, I borrowed money to go to university, and while I graduated on the honour roll I also spent probably a couple thousand in the campus pubs. And I consider it all money well spent; I learned about school in class, and I learned about life (aka women) in the pubs. Win-win!

@Anonymous: My only quibble with what you've said is that your strategy for success was getting an education and enjoying life a little in pubs. Debt was a necessary evil in the process; the debt itself did you no good.

@Brian: I don't consider borrowing to invest good debt. As I argued, I think all debt is bad. The thing you buy with the borrowed money is good. The question becomes whether the two together are a net positive or a net negative.

@Brian: Yes, that's what I mean. Although I'd modify it to say Net result = good (usually). It's possible for the net result to be bad in a number of cases. 1) The student doesn't work hard, learns little, and never graduates. 2) The course of study is so impractical for finding a job or creating one's own job that the result is a net loss. 3) The student goes so far overboard with spending and taking on ever-greater loans that the resulting debt isn't worth the education.

But, in general, taking on student debt in return for an education is a net gain. The net gain is even greater if the student controls spending well.

I'd agree that it's important to keep front and centre that "debt is bad." Otherwise it becomes a slippery slope: If borrowing to go to school is ok, then is it ok to borrow enough to go to school in another city/province/country even though I could get just as well educated while living at home and attending the university 3 blocks away?

If you keep it simple, then the decision making gets simpler. Debt is bad. I will keep my debts as small as possible. I will choose what gives me the same benefit but which costs less.

You can still go to another country to study for a degree. You just will work harder at finding a way to do it without going into debt or without going into as much debt.

what about what being in debt does to you as a person? the physic weight of being in debt to anyone or anything is huge. perhaps a negative not being weighed up here, is how being or nt being in debt changes who you are. for me i havent found a reason good enough yet. and as for school loans there are other options, seriously it just depends on how much it matters to you.

You're 100% right! All these pros and gurus that give advise on debt being good are wrong. All debt is bad. Those who risk getting an loan for business, education, investment property, or home must understand that even if you become a success, the debt has to be payed back with interest (usury).